INSUBCONTINENT EXCLUSIVE:
The domestic equity market witnessed a sudden bout of optimism during the week gone by, as hopes of tax relaxation on equities cheered the
Investors ramped up stock buying but this indeed poses a risk in the short term, as such tax reductions are unlikely to happen immediately
Even if they do happen, it will be in the Union Budget for 2020-21.
Since the run-up in the market was too fast within a short span of days,
there is every likelihood of a swift correction in the near term.
The government has already reached 92.6 per cent of its budgeted estimates
Therefore, the next six months will certainly be challenging for our bureaucrats to raise timely resources
It is quite likely that a massive amount of government divestment along with asset monetisation might impact the secondary market.
Positive
sentiment in the market may reverse quickly near the highs of the market
Hence, jumping the gun at such overbought levels is not a wise idea as Mr Market always tends to behave contrary to consensus
views.
September quarter corporate numbers have certainly not disappointed the Street, as revenues grew, albeit in single digits, and
profits rose due to corporate tax cut gains.
However, it is surprising that statistical economic data for September 2019 suggested a 5.2 per
cent drop in core sector output growth, which was apparently worst in 14 years.
This indeed sends out contrasting signals about the economy
If such numbers are to be believed, there is every likelihood that the market would see a correction in the near term, because things do not
change overnight at the ground level, but stock markets can very well change quickly through swift price actions.
Event of the weekThe US
Fed trimmed interest rates by 25 bps for the third time this year, which was a non-event for the Dow Jones index
is a negative for Mr Market
global equities, including ours, and create turmoil in the short run.
Technical OutlookNifty50 is losing its velocity on the upside, making
Oscillators are showing weakness, which is not a good sign for the bulls
Nifty and Bank Nifty are showing divergence
Bank Nifty is not participating in the rally, which means that the rally is a fractured one, which will trigger selling at higher levels
Traders should book profits, exit long positions and initiate short positions on weakness.
Expectation for the weekWe believe that Mr Market
would turn volatile in the weeks ahead, as it will witness profit booking at higher levels
There will also see a churn in largecaps with inflows into select midcaps
Certainly, the bitten down sectors may witness an up-move and the ones that saw a good rally may linger at current levels
Since there is an environment of uncertainty, investors should pick up stocks with great caution.
Pharma, metals and mining, agriculture are
some of the beaten-down sectors that should be considered from an individual stock picking perspective
They are available at cheaper valuations and, hence, can be good avenues to look at
Private banks and financials should be avoided currently.
Nifty closed the week at 11,890, up 2.6 per cent.
